What Is A Cryptocurrency Exchange:
Exchanges are platforms that allow their users to trade cryptocurrency with one another, as well as to work as a fiat gateway by allowing the conversion between fiat and crypto.
Today, we will be looking at some important aspects you need to keep in mind when choosing or joining an exchange, as well as going through a basic explanation on how they work. So let’s start by looking at how they work.
How Cryptocurrency Exchanges Works?
Exchanges operate by charging fees for their transactions, and that allows the exchange to pay for the cost of running, or, in the case of decentralized exchanges, rewarding liquidity providers. Before the introduction of crypto exchanges, you would have needed to mine your crypto or find someone interested in trading or selling directly. This means that crypto investing was overly complicated, if not impossible, in the early days. This has changed now, as you can open an app or a website and buy as much crypto as you can afford, as the exchange will work as a broker. Exchanges use what is called a trading pair to allow traders to exchange coins between the two types.
USDT/BTC, ETH/DOT, and BTC/ETH are examples of trading pairs. They are saying that you are trading the second coin for the first one. So USD/BTC would mean you’re acquiring dollars by giving up Bitcoin. Exchanges will have a difference in prices on the same trading pairs, as the price is set by their algorithms based on user activity. Users have a direct impact on the same prices by buying and selling them, as this translates to basic economic theory in the form of supply and demand.
What will you get in return for joining an exchange where you can’t acquire crypto or trade legally after all? If anonymity is important to you, you also want to check if a “know your customer” or KYC verification is required by the exchange. This would mean you have to provide personal information to access all of the specific services. For this reason, make sure to check if the exchange you’re considering is available in your country before spending any more effort researching it. You don’t want to find out it is not available for you after you decided it is the right one. The second thing you want to consider is the exchange’s trustworthiness.
I’m not referring to trustworthiness only in the sense of being trusted by many or well known, even if sometimes they come hand in hand. I’m referring to how much you can trust the exchange when it comes to having liquidity, a variety of coins, security, trading volume, and trading pairs.
Third, let’s look at the type of exchange. You might have heard the terms decentralized and centralized exchanges. The names themselves also provide a hint on the difference between them. Centralized exchanges are run by companies who manage and profit from them, while decentralized exchanges operate as peer-to-peer exchanges. Centralized exchanges are easier to use for beginners in most cases. They bring a sense of security as the company has accountability for issues with the platform, usually having more advanced features and having been part of the crypto world for longer.
On the other hand, decentralized exchanges remove single points of failure when it comes to security. They’re usually faster and with less downtime due to decentralization, have lower transaction fees, and have more coins to trade. Decentralization, in the case of exchanges, is just like any other decentralization, has pros and cons.
I hope this question is now clear that what are exchanges in cryptocurrency and which exchange is best. However, the best place for finding hidden gems and investing in recently launched projects. Now, let’s look at the features. Different exchanges have different features when it comes to trading. The option for leverage trading, fiat exchange, insurance cards, charting and analytical tools, two-factor authentication, etc. are just some of the multitude of features that you might be looking for. This is where your taste comes in. What are you looking for?
Are you looking for the most secure exchange?
The one that provides you with the most amount of data without the need to use other platforms? There’s not much I can offer you in this aspect, as that depends entirely on what you are looking for, but I will say that you really should have an idea of what your priorities are, as there is no one-fits-all exchange out there. Sure, it might not make a difference now that you’re starting, but think long-term. Last but not least, there is the social aspect. This might not be important to many, but I think that exchanges have a good sense of community and are a great incentive to continue in and learn about the crypto world. A strong social media presence will allow you to keep updated when it comes to features and opportunities. An official Reddit will allow you to interact with other users. Recurrent events and competitions will open the doors to new opportunities and giveaways to get back to users to show that crypto cares about your situation and satisfaction.